Thursday, October 1, 2015

Nonprofit v Tax-Exempt. What is the Difference?

Nonprofit v Tax-Exempt. What is the Difference?
Julianne Shenk
JBS Nonprofit Consulting
1 October 2015

“I see you run a nonprofit organization. Is it tax-exempt?”
“Yes, all nonprofits are.”

No.
No.
No.

You may have done the homework, applied and have been granted nonprofit status via your state agency, but there is an additional step that few people realize that they MUST do to become tax-exempt in the eyes of the IRS. It is a matter of filing a form; a simple step, but one that nonprofits overlook all too often.

First, here are a few facts:

1.     Nonprofit status indicates the status of your organization under your state’s law.

2.     Tax-exempt status refers to an organization’s tax-exempt status from federal income under IRS (Internal Revenue Service) Code.

According to the IRS website:

Nonprofit status is a state law concept.  Nonprofit status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions.  Although most federal tax-exempt organizations are nonprofit organizations, organizing as a nonprofit organization at the state level does not automatically grant the organization exemption from federal income tax.  To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code.” [1]

To break it down further:

Nonprofits are structured around a cause or community need. Most nonprofit organizations actually the preponderance of npos,[2] are organized to serve a public need.

Tax-exempt status exempts the nonprofit organization from paying income tax on income produced from activities that are substantially/significantly related to the purposes for which the organization was founded/organized.  

The IRS provides clear guidelines for nonprofits and tax-exempt organizations.

Ask questions, do your research and/or call a professional. A lot of my job is helping those looking to start nonprofits. If you need help, feel free to get in touch. If you use the code: OCTBLOG in your email, I will offer 50% off of consultation fees for the month of October 2015.


JBS Nonprofit Consulting EMAIL


[1] www.irs.gov  Last updated 04 March 2015
[2] NPO/NPOs Nonprofit organization(s)

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